Pensions and employment mid-year review

Lisa Talbot (00:05): Hello, I'm Lisa Talbot, co-head of Torys’ pensions and employment practice. We've just released or mid-year review where we share with you 10 key areas of importance to organizations this year, from tariff impacts and cross-border tax issues, to pay transparency and workplace investigations. We hope you will find our report useful as you reflect at the mid-point of what has already been a very eventful year.

Trend 1: CEO succession planning in focus

Lisa Talbot (00:30): One takeaway from our years of collective experience here at Tories is that getting CEO succession right is business critical. Planning for and executing the transition from one chief executive officer to the next is perhaps one of the most important functions of a board of directors. Effective CEO succession could be tied to strong corporate performance, investor and stakeholder trust, and share price stability.

Ineffective succession, as we've all watched play out, can lead to proxy fights, litigation, other executive departures and share price volatility—really adverse outcomes for the business and its stakeholders. Over the years, we've helped many of our clients behind the scenes plan for and execute this important transition, advising on process, governance issues, exit arrangements, executive compensation and contract negotiations, stakeholder communications and CEO onboarding.

We've witnessed firsthand that CEO transitions are becoming more complex and high stakes, and also more frequent with record breaking numbers of CEO transitions in North America in the past year. For these reasons, CEO succession is one of the 10 key issues that we've chosen to highlight in our Pensions and Employment mid-year review.

Trend 2: Complications from cross-border developments

Ellie Kang (01:46): The first half of 2025 has been very eventful for employers with cross-border businesses and operations in the US. Lisa and I are going to highlight two topics of interest. The first relates to the divergence of Canadian and US approaches to political leaders in the US have been questioning the legality and effectiveness of DEI programs, particularly affirmative action programs, putting pressure on US companies to revisit their DEI efforts.

Lisa Talbot (02:17): Meanwhile, Canada's legal framework supports affirmative action programs, and many diversity disclosure requirements remain in effect here, but Canadian companies with US operations now find themselves in a difficult position where enterprise-wide DEI programs may now create legal and business risks in the US. So a very careful and nuanced approach is needed to navigate through these divergent approaches to DEI programs in the two jurisdictions.

Ellie Kang (02:44): Another issue that we have identified is continuing uncertainty in the economy on both sides of the border, including as it relates to tariffs. Employers that are anticipating a downturn may wish to proactively consider cost-cutting measures. And inevitably, these measures will affect their workforces. Employers may consider layoffs, furloughs, pay cuts or pay deferral as potential ways to reduce costs.

Lisa Talbot (03:12): Generally, implementing these types of measures will be more difficult to do in Canada than in the US, and certainly more complicated for unionized workforces on both sides of the border.

Trend 3: AI risks in the workplace

Rebecca Wise (03:26): AI is becoming a bigger part of the workplace, and while it can absolutely improve efficiency, it also introduces real legal risks that employers need to be thinking about. One of the biggest concerns is around discrimination. AI tools, especially generative ones, can unintentionally make decisions that disadvantage individuals or groups that are protected under human rights laws. And if those tools are using personal data, you need to ensure that you're not violating privacy rights.

Irfan Kara (03:52): So even though federal Bill C-27 didn't pass, provinces like Ontario and Québec already have rules in place. That includes transparency requirements and recruitment and electronic monitoring policies. And of course, privacy laws like PIPEDA still apply. So what should employers be considering? First, disclose how AI is being used and get consent where required. Second, make sure employees know how to challenge decisions and access their data. And third, just don't rely on the vendor. You got to understand how the tool works.

Rebecca Wise (04:23): Employers using AI should also consider keeping a human in the loop as it relates to their tools, and also running bias assessments from time to time. And of course, make sure that your contracts with your vendors contain the right protections and indemnifications.

Irfan Kara (04:37): AI can be a really powerful tool, but only if it's used responsibly, with transparency, and with a clear understanding of the legal landscape.

Trend 4: Changing executive and director compensation expectations

Jennifer Lennon (04:48): When it comes to executive compensation, Ellie and I are going to highlight two trends we're seeing in this space. The first relates to ESG metrics and compensation plans, and the second relates to cross-border consideration and equity incentive plans. Over the past number of years, many companies have started including ESG metrics in both short-term and long-term incentive plans.

With the growing DEI backlash in the US, it's important to take a look at these ESG metrics to understand how they're being used, how they're being assessed, and where they're publicly disclosed. More and more, clients are looking to carefully balance their executive compensation philosophy with shifting views in DEI and ESG in order to determine what's best for the company and their organization.

So, Ellie, can you give us a rundown of what you're seeing on cross-border equity incentive considerations?

Ellie Kang (05:41): Sure. We're continuing to see significant mobility in our cross-border workforce, particularly in the talent pool for directors and executives. Although similar equity vehicles are used in both Canada, in the US, such as stock options, companies should recognize that different tax rules that apply in Canada in the US could create significant complexity in designing equity incentive programs that work for the cross-border workforce.

DSUs for directors and executives are one example in which a careful planning is required to avoid unintended tax consequences under both jurisdictions, particularly around the timing of the deferral election and payment trigger events.

Trend 5: Workplace investigations on the rise

Rebecca Wise (06:32): We're seeing a real increase in internal investigations, and they're not just more frequent, they're becoming more complex. There's more judicial scrutiny, and organizations are under increasing pressure to investigate everything, even when that may not be necessary. That's putting a real strain on internal resources.

Lisa Talbot (06:47): We're seeing a rise in conflict of interest investigations in particular, especially involving leadership that's likely driven by stronger corporate integrity, expectations and regulatory pressure. At the same time, whistleblower hotlines are being used more than ever. They're accessible, they're anonymous. That's great. They're also being misused from time to time, and that takes time and resources to manage.

Rebecca Wise (07:09): And it's not just the volume of investigations, it's how they're actually being done. Regulators and courts are looking more closely at process: was the investigation fair? Was it consistent? Was the investigator truly impartial? These are really important questions for employers to be considering.

Lisa Talbot (07:24): And that's why it's really important to start with a clear plan. Ask: do we really need to investigate? If so, think about privilege. Do you want it to apply? How will you maintain it? And also make sure the process is fair for everyone involved and that your investigators are trained, not just in process, but in things like bias, trauma-informed approaches and procedural fairness, which are areas in which there is increased judicial scrutiny.

Rebecca Wise (07:47): Bottom line is that workplace investigations are evolving. Organizations need to be strategic, not just reactive. That means knowing when to investigate and also how to do it right.